EXHIBIT
4.1
LIMITED RECOURSE PROMISSORY
NOTE
CDN
$6,750,000.00Minneapolis, Minnesota, USA
1.
FOR VALUE RECEIVED, the undersigned,
HUNTER BATES MINING CORPORATION , a Minnesota
corporation (hereinafter “Borrower”) whose address is
900 IDS Center, 80 South 8 th Street, Minneapolis MN
55402-8773, promises to pay to the order of GEORGE E.
OTTEN, (“Holder”) , a
Colorado resident whose address is 11438 Weld County Rd 19, Fort
Lupton, CO 80621 (or his nominee or assignee) the principal sum of
Six Million Seven Hundred Fifty Thousand and 00/100 Canadian
Dollars (CDN $6,750,000.00), in lawful money of Canada, together
with interest on the unpaid principal balance, at the interest rate
as set forth below, in installments as follows:
(i) On or before December 1, 2008, the sum of
$250,000;
(ii) Commencing on April 1, 2010, and continuing on
each January 1, April 1, July 1, and October 1 thereafter (each, a
“Payment Date”) until the Maturity Date (as defined
below), the Borrower shall pay a quarterly installment of accrued
interest only plus a Production Revenue Payment (as defined below),
calculated at the interest rate as set forth below.
(iii) On the earlier of (i) fifth anniversary of the
first Production Revenue Payment or (ii) December 31, 2015 (such
earlier date is referred to herein as the “Maturity
Date”), the entire remaining principal balance together with
any unpaid accrued interest shall be due and payable.
2.
From the date hereof until December
31, 2009, no interest shall accrue on the unpaid balance hereunder.
From January 1, 2010 until this Note is paid in full, interest
shall accrue on the unpaid balance hereunder at the rate of six
percent (6.00%) per annum; provided, however, that in the event of
a default hereunder, the unpaid balance shall accrue interest at
the rate of eight (8%) (the “Default Rate”) during the
period of such default.
3.
In addition to the interest payments
due above, Borrower agrees that, on the first Payment Date
following the first Calendar Quarter (which is defined as any (i)
January 1 to March 31, (ii) April 1 to June 30, (iii) July 1 to
September 30, or (iv) October 1 to December 31, of any year) in
which Borrower realizes Profit (as defined below) in excess of
US$100,000 in such Calendar Quarter from the real estate commonly
known as the “Hunter Gold Mine”, located in the Gilpin
County, Colorado, USA (the “Mine”), which was acquired
by Borrower in part from Hunter Gold Mining Inc. (“HGM
Inc.”), in part from Central City Consolidated Corp.
(“Central City”) and in part from George Otten
(“Otten”) on the date of this Note, and continuing on
each Payment Date thereafter until this Note is repaid in full,
Borrower shall make principal repayments hereunder (each a
“Production Revenue Payment”), which payment(s) shall
equal:
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For all
Calendar Quarters ending on or prior to December 31, 2012,
seventy-five per cent (75%) of the Profit realized by the Borrower
for the immediately preceding Calendar Quarter, and
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For Calendar
Quarters ending after December 31, 2012, the greater of (a)
Seventy-five per cent (75%) of the Profit realized by the Borrower
for the relevant Calendar Quarter and (b) CDN
$300,000.00.
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Notwithstanding
the foregoing, if the Borrower has not been obligated to make a
Production Revenue Payment by December 31, 2012, then beginning on
April 1, 2013 and continuing on each Payment Date until the
Borrower has become obligated to make a Production Revenue Payment,
the Borrower shall make principal repayments hereunder in the
amount of CDN $550,000. Upon the Borrower becoming obligated to
make a Production Revenue Payment at anytime after April 1, 2013,
the Borrower shall thereafter make Production Revenue Payments in
accordance with the foregoing subsection 3(ii).
For the
purposes of the foregoing, “Profit” shall be defined as
any positive number comprising all revenue received by Borrower
from sales of minerals or mineral by-products from the Mine, less
all Borrower’s expenses, including interest expense but
excluding depreciation, distributions or dividends paid to
shareholders of Borrower, incurred in connection with such sales or
the operation of the Mine for the immediately preceding Calendar
Quarter.
4.
Notwithstanding anything contained
in this Note to the contrary, the Holder may demand payment in full
and declare the outstanding balance due hereunder immediately due
and payable in the event that (i) there has been a change of
control of the Borrower by virtue of any party (other than the
“Covenantor”, as defined below) acquiring more than 50%
of the issued and outstanding shares of any class of the Borrower,
or (ii) if the Borrower disposes of its interests in the Mine.
.
5.
All payments hereunder shall be made
by way of guaranteed or immediately available funds delivered to
the offices of Pushor Mitchell LLP, 3 rd Floor, 1665
Ellis Street, Kelowna, British Columbia, Canada, V1W 4T7,
Attention: E. Blair Forrest. The parties hereto specifically agree
that any payments made to or for the benefit of Holder, HGM Inc.,
Hunter Gold Mining Corp. (“HGM Corp.”), a British
Columbia corporation, or Central City by Borrower or Covenantor,
shall be deemed to be payments made hereunder and credited against
sums next due and owing hereunder, provided that, (i) prior to
making such payment(s), Borrower shall have received written
approval from Pushor Mitchell, LLP (as escrow agent in respect of
this Note, or their successor) that such payments shall be for the
account of Holder hereunder and (ii) payments referenced in Section
19 of the Fifth Amendment to Asset Purchase Agreement, dated of
even date herewith, by and among the foregoing parties, are deemed
to be payments made hereunder. The Holder shall promptly provide
the Borrower with a written receipt for all payments received from
the Borrower and/or the Covenantor in respect of the sums due
hereunder.
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